May 16, 1988
Maurice C. Christiansen, CPA
Auditor General
435 South Chapelle
Pierre, South Dakota 57501-3292
Official Opinion No. 88-20
Status of South Dakota Development Corporation
Dear Mr. Christiansen:
You have requested an official opinion from this office on the question of the status of the South Dakota Development Corporation (SDDC).
Specifically you have asked the following questions.
QUESTIONS:
1. Does the South Dakota Constitution, Article IV, Section 8 authorize the Governor to establish nonprofit organizations, specifically the South Dakota Development Corporation?
2. Is the SDDC an organizational unit of state government?
3. Are monies generated from services provided by the SDDC Board of Directors and state agency employees considered state funds? (SDCL 4-3)
4. May monies collected by the SDDC be used to pay for travel costs and other expenses of state employees?
5. May the monies collected by the SDDC be used to reimburse state employees for travel costs or other costs that exceed the reimbursement rates authorized by state law and the Board of Finance rules? (These state employees are subject to the Board of Finance Rules.) (SDCL 3-9)
GENERAL DISCUSSION AND BACKGROUND:
Executive Order 83-12 issued July 13, 1983, directed that a nonprofit corporation be established by the South Dakota Department of State Development. However, that Executive Order did not, nor could it by itself, create a corporation. There seems to be some erroneous belief even in documents of the corporation that it was created by the Executive Order. However, it was actually formed under the provisions of SDCL 47-22 and it received its Certificate of Incorporation as a nonprofit corporation on August 10, 1983.
Section 6 of Executive Order 83-12 directed that all administrative functions of the corporation should be performed by the South Dakota Department of State Development, now the Governor's Office of Economic Development (GOED) created within the office of Executive Management, SDCL 1-33-15, (Executive Order 87-1). The purposes for which the corporation was organized as declared in the Executive Order and in the Articles of Incorporation was to benefit the State of South Dakota by "fostering increased employment opportunities and expansion of business and industry for the citizens of this state".
Executive Order 87-1, (1-33-18) further declares: "(T)he Governor's Office of Economic Development shall forge a private-public partnership among state government, local communities, higher education in the private sector to create jobs that create goods and services for use within the state and for export outside the state, which results in the creation of new wealth."
Monies apparently are received by SDDC based on a processing fee and a service charge on the outstanding balances of loans made. The general question would then seem to come down to whether public funds appropriated to the Governor's Office of Economic Development (GOED) may be expended for the operating expenses and staffing of the SDDC in amounts other than that authorized for state employee reimbursement.
Section 2, Article XI of the South Dakota Constitution provides in part that "taxes ..." shall be levied and collected for public purposes only." In the case of Mackey v. Reeves, 42 S.D. 340, 175 N.W. 359, the court held "An appropriation of public money to be constitutional must be for some use or object which, directly or indirectly, in some degree or manner will materially aid in the proper functioning of some governmental agency, and in so doing will serve a public purpose." As an example the court pointed out decisions based on the principle that an appropriation was permitted when it was beneficial to the people of the state for the purpose of the protection of the public such as fire companies, bounties for soldiers or their families as inducements to encourage enlistment. The court noted the Constitution "... clearly inhibits the collection and necessarily the expenditure, of public monies for private benefit as distinguished from public purposes."
It is my view that the purposes of the South Dakota Development Corporation and its actions are public purposes in support of GOED.
IN RE QUESTION NO. 1:
Section 8 of Article IV of the South Dakota Constitution, while permitting the Governor to establish offices, boards, agencies, commissions and instrumentalities of state government and make changes in such entities, does not address the question of establishing nonprofit corporations. Section 1, Article XVII of the South Dakota Constitution vests in the legislature the sole authority to pass general laws for the organization of all corporations.
Therefore, the answer to your first question is no. The Governor may however create by Executive Order of Reorganization, a Department of Government with the authority to establish a corporation by following the appropriate laws of the State.
IN RE QUESTION NO. 2:
SDDC is not an organizational unit of state government. It is a private nonprofit corporation organized under SDCL 47-22 to work with the state in promoting and assisting the growth and development of business concerns in South Dakota, including small business.
IN RE QUESTION NO. 3:
Since SDDC is not a state agency, the monies generated from the services provided by the board are not state funds.
IN RE QUESTION NO. 4:
It is my opinion that monies collected by SDDC may be used to pay for travel costs and other expenses of state employees but if that is done then the employees are not entitled to be paid under SDCL ch. 3-9.
IN RE QUESTION NO. 5:
It is my opinion that so long as state monies are not involved, the regulations of the Board of Finance do not govern the amount of payment. Although I recognize that state employees are generally subject to Board of Finance rules, it is the corporation that is doing the paying and not a state agency.
Respectfully submitted,
Roger A. Tellinghuisen
Attorney General
